A company has discretion to determine its financial year-end, provided it is a 12-month period. However, any changes in this must be approved by the Commissioner of the KRA.
Resident companies and PEs of non-resident companies must file a self-assessment tax return annually. The return is accompanied by a tax computation and financial statements, amongst other schedules. The return is due within six months following a company’s financial year-end.
Payment of tax
Instalment tax payments must be made during the year based on the lower of 110% of the previous year’s liability or an estimate of the current year’s liability. Instalment tax payments are due on the 20th day of the fourth, sixth, ninth, and twelfth month of a company’s financial year.
Agricultural companies are required to pay estimated tax in two instalments of 75% and 25% during the year. Any balance of tax at the end of the year must be paid within four months of the financial year-end.
Payment of agency taxes
The tax withheld from payments must be paid by the 20th day of the month following the month in which the deduction is made.
Tax Procedures Act (TPA)
The TPA, which entered into force on 19 January 2016, aims to provide uniform procedures for consistency and efficiency in the administration of tax laws, facilitate tax compliance by taxpayers, and promote the effective and efficient collection of tax.
The TPA also harmonises and consolidates tax procedural rules. For example, the TPA provides that a taxpayer should keep records for five years. Previously, the different tax laws, such as the VAT Act 2013, Income Tax Act, and Excise Act, prescribed different timeframes that records should be kept by a taxpayer. Given that it is a relatively new piece of tax legislation, there are some inconsistencies when you mirror the TPA and other tax legislation, though we expect these inconsistencies to be addressed with time.
The Finance Act, 2023 introduced section 23A, which grants the Commissioner the authority to establish an electronic tax system for issuing tax invoices and recording stocks. Once implemented, all business enterprises, including residents and PEs of non-resident persons, will be required to use the electronic system to issue invoices and maintain records of their stocks.
The Finance Act, 2023 further introduced section 37E, which takes away from the Commissioner the authority to collect interest and penalties on principal taxes that were due and paid before 31 December 2022. If the principal tax was not paid by that date, taxpayers have the option to apply for amnesty on the interest and penalties accrued up to 31 December 2022 on the unpaid tax. To benefit from the amnesty, the taxpayer must propose a payment plan for the outstanding amount and commit to paying all outstanding principal taxes by 30 June 2024.
The Tax Appeal Tribunal Act
The Tax Appeal Tribunal Act, which entered into operation on 1 April 2015, establishes one tribunal that will hear appeals for all tax areas. Previously, income tax matters would be heard by the Local Committee whereas VAT matters would be heard by the Tax Tribunal.
Tax audit process
There is no prescribed audit process, as an audit can be triggered by various factors as determined by the KRA. Generally, tax audits should be carried out after every two to four years. The audit or inspection will commence with a request from the KRA for the taxpayer to make available any such records or information as may be required.
Statute of limitations
The tax authorities must issue an assessment before the expiry of five years from the date of filing the self-assessment by the taxpayer. The KRA may go back past five years where fraud is suspected. There is no time limit for completing tax audits. However, they are normally completed within a reasonable time, especially if there are no major disputes.
Topics of focus for tax authorities
The tax authorities are focused on detecting fraudulent behaviour and potential tax evasion by using risk-based approaches and by providing analytic capability and intelligence information to users for better decision making and revenue growth.